By William Patalon III
Money Morning/Money Map Report
For years, certain advisors have touted the "buy-and-hold" strategy as the pathway to optimal investment returns. While it's true that short-term gyrations can lead to temporary investment setbacks, any resulting losses can be overcome, since stocks always rise over the long haul.
Or do they?
During the previous nine years, the benchmark Standard & Poor's 500 Index has essentially traded flat, posting an annual decline of 0.37%. By contrast, during the same time frame, treasuries have climbed 4.7% per year and commodities and real estate have fared even better still. The Wall Street Journal referred to this period as "The Lost Decade" for stocks.
The message here: Don't let "buy-and-hold" become "buy-and-forget."
Employ the Money Morning investment strategy. Monitor your portfolios for rebalancing opportunities and achieve greater diversification by considering allocations to such non-traditional asset classes like commodities and real estate. And most important of all, capitalize on the faster growth of the global markets.
Financial stocks were again the headline-makers of the week [What else is new?], as shares of The Bear Stearns Cos. (BSC) rebounded a bit when JPMorgan Chase & Co. (JPM) upped its offer for the company by fivefold. Don't think other institutions are ignorant of the U.S. Federal Reserve's recent "creative" moves [most folks would refer to them as "bailouts"]. Indeed, quite a few financial-services firms are probably in the hunt for a bargain-basement buyout of their own. Wells Fargo & Co. (WFC) Chief Executive Officer was honest enough to say said that he "would not be averse to a Fed-assisted transaction… fixer-uppers don't bother us."
Even the Bush administration set aside its long-standing policy of "less government" for the time being as U.S. Treasury Secretary Henry Paulson admitted that the investment community would benefit from more regulation and greater oversight
Analysts took turns dissecting each other this week as Lehman Brothers Holdings Inc. (LEH) reduced estimates on Citigroup Inc. (C) and Bank of America Corp. (BAC); Oppenheimer Holdings Inc. (OPY) cut earnings forecasts on Merrill Lynch & Co. Inc. (MER); and Citi increased its rating on Lehman after that company's shares plunged on rumors of ongoing, Bear Stearns-like challenges. Of course, Lehman claims short-sellers were behind the nonsensical talk as they looked to profit from the wild price swings.
Outside the financial sector, news from the retail sector was mixed last week as Tiffany & Co. (TIF) boosted its earnings guidance for the year and Walgreen Co. (WAG) reported stronger-than-expected second-quarter earnings. On a sour note, J.C. Penney Co. Inc. (JCP) lowered its expectations for future sales and profitability as the economy has hindered consumer activity. Techs suffered some disturbing news last week, as Oracle Inc. (ORCL) announced disappointing sales numbers and Google Inc. (GOOG) said that its "paid click data" was lower than anticipated for the second month in a row. The jury is still out on the proposed $19 billion Clear Channel Communications Inc. (CCU) privatization transaction, as banks and private-equity firms haggle over funding terms.
Oil prices rose again last week as lower inventory levels brought renewed fears that the dwindling supply would be not keep up with summer demand. Additionally, an attack on a key pipeline in Iraq added more "fuel to the fire."
Then again, a slowing economy and oil at better than $105 a barrel should serve to dampen demand. Investors welcomed word of the new-and-improved JPMorgan/Bear Stearns deal, but were disappointed by the continued sluggish economic data and the pessimistic announcements by a few tech giants. So despite the market volatility, certain investors were again treading water as some major equity indexes ended the week not far from where they opened.
Has anyone acquired the copyrights on "The Lost Decade" yet? We think it would make for some wickedly cool T-shirts…
10 yr Treasury (Yield)
Weekly Economic Calendar
Existing Home Sales (02/08)
Surprising increase after 6 straight monthly declines
Consumer Confidence (03/08)
Worst confidence showing in 5 years
New Home Sales (02/08)
Lowest level of sales in 13 years
Durable Goods Orders (02/08)
Larger than expected drop in orders for big-ticket items
Initial Jobless Claims (03/22/08)
Better than expected reading on labor market
GDP (4th qtr)
Confirmed the 0.6% growth rate
Personal Income/Spending (02/08)
Income rose while cautious consumers reduced spending
The Week Ahead
Construction Spending (02/08)
ISM – Manu (03/08)
Factory Orders (02/08)
Initial Jobless Claims (03/29/08)
ISM – Services (03/08)
Unemployment Rate (03/08)
Nonfarm Payroll Additions (03/08)
So maybe a celebratory parade in honor of the February existing home sales data [best showing in a year] was a bit premature? While some analysts began proclaiming the "beginning of the end" of the housing slowdown, a few new releases dampened their moods considerably as the week progressed.
A related report showed that new home sales in February dropped to the lowest level in 13 years. Further, the S&P/Case-Shiller index depicted the worst decline in home prices since 1987 [when the index was created]. Likewise, the manufacturing sector took a hit last week as durable goods orders surprised analysts by falling much more than expected, while consumers remained in hibernation with the Consumer Confidence Index suffering its poorest showing in five years.
The final reading of fourth-quarter 2007 gross domestic product (GDP) confirmed earlier reports of extremely feeble (+0.6%) economic growth – though many analysts believe the current quarter will prove to be even worse. With all the talk about recession, many are predicting negative growth for this year's first quarter – and possibly beyond.
Bear in mind, none of the current numbers reflect any of the recent creative moves the Fed has initiated over the past few weeks in an attempt to jump-start the economy [or at least to prevent additional carnage in the U.S. financial sector]. If U.S. Federal Reserve Chairman Ben S. Bernanke can work some magic, the downturn [dare we say recession?] will be short-lived, and that celebratory parade will be in order soon.
News and Related Story Links:
Wells Fargo CEO open to a 'Fed-assisted' deal.
- Money Morning News Analysis:
Oil Prices Surge After Basra Bombings.
- Money Morning News Analysis:
Home Sales Rise While Prices Slide Most in 40 Years.
- Money Morning News Analysis:
Fourth Quarter GDP Unrevised; Flat First Quarter Expected.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.